The case involved a polish brewery – Browary Zywiec and an Illinois’ wholesaler, Stawski Distributing. The parties had a distributing agreement that provided that any dispute would be arbitrated in Poland. (A copy of the distributing agreement from the Court file can be found here.) Specifically, it read that:

“Any dispute arising out of this Agreement which can not be settled amicably between the parties shall be settled by the Arbitration Court of the Polish Chamber of Foreign Trade in Warsaw. The parties undertake to execute this decision voluntarily.”

A dispute arose between the two when the brewer told the distributor that it would sell beer in Illinois through someone else. The wholesaler sued the brewer contending that a termination would violate BIFDA. The brewer asked the federal district court to stay the litigation pending arbitration and the court denied the request stating that even though the arbitration agreement was supported by both federal law and international treaty (the New York Convention, 21 U.S.T. 2517 (1970) implemented by 9 USC sections 201-08), the Constitution’s twenty-first amendment gave states the power to displace both national and international law for the liquor business. The brewer appealed to the 7th Circuit.

The Appellate Court disagreed with the district court. Noting that BIFDA required that arbitration be offered under distinct terms and that the brewer hadn’t complied with those requirements when it made arbitration a part of the contract, the Court went on to say that even though BIFDA requirements weren’t followed, the twenty-first amendment did not entitle states to trump the parties contract to arbitrate, the Federal Arbitration Act, and the United States’ treaty commitments with its trading partners. The Court held that the Supremacy Clause of the United States’ Constitution subordinated BIFDA to the federal rules and that the arbitration provision was enforceable and reversed the decision of the district court:

Section 2 of the twenty-first amendment provides: “The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited.” This language permits the states to restrict imports without regard to the “dormant commerce clause.” It does not have any more sweeping effect. In particular, as the Court held in Midcal and Crisp, and has reiterated since, “the Twenty-first Amendment does not in any way diminish the force of the Supremacy Clause”. Illinois has not set out to curtail beer imports from Poland; Stawski argues, to the contrary, that Illinois law compels a Polish brewer to continue providing it with supplies. That is some distance from the language of § 2, which does not relieve Illinois of its obligation to respect federal statutes and treaties, “the supreme Law of the Land”. Suppose that Illinois had attempted to require all disputes arising out of the Beer Industry Fair Dealing Act to be litigated in state court. Could such a statute block Zywiec from removing to federal court under 28 U.S.C. § 1441(a), given the complete diversity of citizenship? Surely not. Yet a federal court would be a forum different from the one specified by Illinois law, just as arbitration occurs in a different forum. If removal under federal law is proper, then arbitration under federal law must be proper–in either event, it is the Supremacy Clause that subordinates the state’s preference to the federal rule.

Now, the Act’s provisions regarding arbitration were a different back then. The Act back then read that No Brewer Shall:

…(12) Present an agreement requiring the wholesaler to arbitrate all disputes without offering the wholesaler in writing the opportunity to reject arbitration and elect to resolve all disputes by maintaining a civil suit in accordance with this Act.

But the Supremacy Clause hasn’t changed and neither have the applicable federal laws. It would be interesting to see how these same facts would play out today.

This case has some very interesting subsequent history that we’ll talk about next week.